FIRST AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AGREEMENT
Exhibit 10.1
FIRST
AMENDMENT
TO
THIRD AMENDED AND RESTATED
LOAN AGREEMENT
This
First Amendment to Third Amended and Restated Loan Agreement (this “Amendment”) is made
as of the 12th day of May, 2008, by and among
Xxxxx
Brothers Xxxxxxxx & Co. (hereinafter, the “Administrative Agent”), a
general partnership organized under the laws of the State of New York with
offices at 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000; and
TD
Banknorth, N.A. (hereinafter, the “Documentation Agent”) a
national banking association with offices at 7 New England Executive Park,
Xxxxxxxxxx, Xxxxxxxxxxxxx 00000; and
Bank of
America, N.A. (hereinafter, the “Syndication Agent”), and,
together with the Administrative Agent and the Documentation Agent, the “Agents”), a national
banking association with offices at 000 Xxxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000,
as Agents
on behalf of Xxxxx Brothers Xxxxxxxx & Co., TD Banknorth, N.A., Bank of
America, N.A., and the other financial institutions which may hereafter become
parties to the Loan Agreement (as defined below) (each such party a “Lender” and collectively the
“Lenders”),
and
Dynamics
Research Corporation (hereinafter, the “Lead Borrower”), a
Massachusetts corporation, with its principal executive offices at 00 Xxxxxxxx
Xxxx, Xxxxxxx, Xxxxxxxxxxxxx, as agent for itself and each of
DRC
International Corporation (“International”), a
Massachusetts corporation with its principal executive offices at 00 Xxxxxxxx
Xxxx, Xxxxxxx, Xxxxxxxxxxxxx; and
X.X. Xxxx
Associates, Inc. (“X.X.
Xxxx”), a Delaware corporation with its principal executive offices at 00
Xxxxxxxx Xxxx, Xxxxxxx, Xxxxxxxxxxxxx,
(each of
the Lead Borrower, International, and X.X. Xxxx, being sometimes hereinafter
referred to individually as a “Borrower” and collectively as
the “Borrowers”).
WHEREAS,
the Borrowers, the Lenders and the Agents are parties to a certain Third Amended
and Restated Loan Agreement dated September 29, 2006 (as may be amended and in
effect from time to time, the “Loan
Agreement”);
WHEREAS,
the Borrowers have requested that the parties hereto amend the Loan Agreement to
modify certain covenants contained therein and certain other provisions of the
Loan Agreement; and
WHEREAS,
the Agents and the Lenders each agree to modify and amend certain provisions of
the Loan Agreement, subject to the terms and conditions set forth
herein;
NOW
THEREFORE, as an additional inducement for the Lenders to maintain the revolving
credit facilities on the terms and conditions set forth in the Loan Agreement as
amended hereby, and for
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other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each of the Borrowers and the other parties to the Loan Agreement
covenants and agrees as follows:
1. Definitions. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Loan Agreement.
2. Amendments to Loan
Agreement.
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(a)
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Section
7.10 of the Loan Agreement is hereby amended by deleting the following
text appearing therein in its
entirety:
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“7-10.
Net
Profit.
The
Borrowers shall earn a minimum Consolidated Net Income, as determined in
accordance with GAAP, of at least $1.00, measured quarterly as of the end of
each fiscal quarter of each fiscal year on a cumulative basis as and for each
such fiscal year.”
and
substituting the following text therefor:
“7-10.
Net
Profit.
The
Borrowers shall earn a minimum Consolidated Net Income, as determined in
accordance with GAAP, of at least $1.00, measured quarterly as of the end of
each fiscal quarter of each fiscal year on a cumulative basis as and for each
such fiscal year; provided, however, the
calculation of Consolidated Net Income for the periods ending June 30, 2008,
September 30, 2008 and December 31, 2008 shall not include a reserve for a
one-time pre-tax charge in an amount up to $8,900,000 (the “2008 Reserve”) in
connection with the resolution of certain litigation involving the Lead
Borrower, as more particularly described in paragraph 2 of Exhibit
5-17.”
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(b)
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Exhibit
5-17 to the Loan Agreement is hereby deleted and replaced with the text
attached hereto as Exhibit
A.
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(c)
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Section
5-27(a) of the Loan Agreement is hereby amended by deleting the “.” at the
end of the Section and substituting
therefor:
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“, and other than the 2008
Reserve.”
3. Waiver. The
Agents and the Lenders hereby waive (i) the Borrowers’ failure to comply with
Section 7.10 of the Loan Agreement (Consolidated Net Income requirement) for the
period ending March 31, 2008 and (ii) any Event of Default pursuant to Section
8-10 and 8-17 of the Loan Agreement arising solely and directly from the 2008
Reserve. The waiver
contained in clause (i) above is a one-time waiver and relates solely to the
period ending March 31, 2008. Except to the limited extent expressly
provided herein, nothing contained in this waiver shall be construed to modify
the Loan Agreement or to modify, waive, impair, or affect any of the covenants,
agreements, terms and conditions thereof, or to waive the due keeping,
observance and/or performance thereof.
4. Amendment
Fee. In consideration of the Agents and the Lenders entering
into this Amendment, the Borrowers shall pay to the Administrative Agent, for
the benefit of the Lenders, a fee (the “Amendment Fee”) in
the amount of Fifteen Thousand Dollars ($15,000.00) upon the execution of this
Amendment, which Amendment Fee shall be deemed fully earned as of the date
hereof and shall be distributed by the Administrative Agent to the Lenders (with
each Lender to receive Five Thousand Dollars ($5,000.00)).
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5. Conditions to
Effectiveness. This Amendment shall not be effective until
each of the following conditions precedent have been fulfilled to the
satisfaction of the Administrative Agent:
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(a)
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This
Amendment shall have been duly executed and delivered by the Borrowers,
the Administrative Agent and the Lenders and the Administrative Agent
shall have received a fully executed copy
hereof.
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(b)
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The
Administrative Agent shall have received such other documents,
instruments, and certificates relating to the transactions contemplated by
this Amendment as may be reasonably requested by the Administrative
Agent.
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(c)
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The
Administrative Agent shall have received the Amendment Fee from the
Borrowers.
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(d)
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No
default or Event of Default shall be continuing immediately after giving
effect to the execution of this
Amendment.
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6. Ratification of Loan
Documents. Except as specifically amended or modified in this
Amendment, all of the terms and conditions of the Loan Agreement and each of the
other Loan Documents shall remain in full force and effect. Each of
the Borrowers hereby ratifies, confirms, and reaffirms all representations,
warranties, and covenants contained therein. Each of the Borrowers
hereby represents and warrants that, on the date hereof, no default or Event of
Default exists. Each of the Borrowers further acknowledges, confirms
and agrees that the Borrowers do not have any offsets, defenses, or
counterclaims against the Agents or the Lenders arising out of the Loan
Agreement or the other Loan Documents, and to the extent that any such offsets,
defenses, or counterclaims may exist, each of the Borrowers hereby WAIVES and
RELEASES the Agents and the Lenders therefrom.
7. Miscellaneous.
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(a)
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This
Amendment may be executed in several counterparts and by each party on a
separate counterpart, each of which when so executed and delivered shall
be an original, and all of which together shall constitute one
instrument.
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(b)
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This
Amendment expresses the entire understanding of the parties with respect
to the transactions contemplated hereby. No prior negotiations
or discussions shall limit, modify, or otherwise affect the provisions
hereof.
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(c)
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Any
determination that any provision of this Amendment or any application
hereof is invalid, illegal or unenforceable in any respect and in any
instance shall not affect the validity, legality, or enforceability of
such provision in any other instance, or the validity, legality or
enforceability of any other provisions of this
Amendment.
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(d)
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The
Borrowers each warrant and represent that each such Borrower has consulted
with independent legal counsel of such Borrower’s selection in connection
with this Amendment and is not relying on any representations or
warranties of the Agents or the Lenders, or their respective counsels, in
entering into this Amendment.
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(e) Except
as expressly provided herein, the amendments set forth herein shall be effective
as of the date of this Amendment.
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IN
WITNESS WHEREOF, the parties have duly executed this Amendment as a sealed
instrument as of the date first set forth above.
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DYNAMICS
RESEARCH CORPORATION
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(“Lead Borrower and
Borrower”)
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By:
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/s/
Xxxxx Xxxxxxx
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Name:
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Xxxxx
Xxxxxxx
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Title:
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Senior
Vice President - Finance,
CFO
and Treasurer
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DRC
INTERNATIONAL CORPORATION
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(“Borrower”)
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By:
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/s/
Xxxxx Xxxxxxx
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Name:
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Xxxxx
Xxxxxxx
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Title:
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Vice
President - Finance and CFO
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X.X.
XXXX ASSOCIATES, INC.
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(“Borrower”)
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By:
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/s/
Xxxxx Xxxxxxx
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Name:
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Xxxxx
Xxxxxxx
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Title:
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Treasurer,
CFO and Assistant
Secretary
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[Signature
Page to First Amendment to
Third Amended
and Restated Loan Agreement]
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XXXXX
BROTHERS XXXXXXXX & CO.
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(“Administrative
Agent and Lender”)
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By:
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/s/
Xxxxxx X. Head Jr.
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Name:
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Xxxxxx
X. Head Jr.
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Title:
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S.V.P.
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TD
BANKNORTH, N.A.
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(“Documentation
Agent and Lender”)
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By:
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/s/
Xxxxxxx X. Xxxxxxxx
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Name:
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Xxxxxxx
X. Xxxxxxxx
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Title:
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Senior
Vice President
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BANK
OF AMERICA, N.A.
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(“Syndication
Agent and Lender”)
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By:
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/s/
Xxxx X. Xxxxxxxxx
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Name:
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Xxxx
X. Xxxxxxxxx
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Title:
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Senior
Vice President
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[Signature
Page to First Amendment to
Third Amended
and Restated Loan Agreement]
EXHIBIT
A
Exhibit
5-17
DYNAMICS
RESEARCH CORPORATION
Litigation
1. As
a defense contractor, the Company is subject to many levels of audit and review
from various government agencies, including the Defense Contract Audit Agency,
various inspectors general, the Defense Criminal Investigation Service, the
Government Accountability Office, the Department of Justice and Congressional
Committees. Both related to and unrelated to its defense industry involvement,
the Company is, from time to time, involved in audits, lawsuits, claims,
administrative proceedings and investigations. The Company accrues for
liabilities associated with these activities when it becomes probable that
future expenditures will be made and such expenditures can be reasonably
estimated. Except as noted below, the Company does not presently believe it is
reasonably likely that any of these matters would have a material adverse effect
on the Company’s business, financial position, results of operations or cash
flows. The Company’s evaluation of the likelihood of expenditures related to
these matters is subject to change in future periods, depending on then current
events and circumstances, which could have material adverse effects on the
Company’s business, financial position, results of operations and cash
flows.
2. On
October 26, 2000, two former Company employees were indicted and charged with
conspiracy to defraud the United States Air Force, and wire fraud, among other
charges, arising out of a scheme to defraud the United States out of
approximately $10 million. Both men subsequently pled guilty to the principal
charges against them. On October 9, 2003, the United States Attorney filed a
civil complaint in the United States District Court for the District of
Massachusetts against the Company based in substantial part upon the actions and
omissions of the former employees that gave rise to the criminal cases against
them. In the civil action, the United States is asserting claims against the
Company. These claims, which cannot lead to multiple awards, are based on the
False Claims Act, the Anti-Kickback Act, and breach of contract for which the
government estimates damages at approximately $24 million, $20 million and $10
million, respectively. The United States Attorney also seeks recovery on certain
common law claims and equitable claims as for recovery of costs, and interest on
breach of contract damages. The Company estimates the maximum awardable amount
of damages to be $26 million. On February 14, 2007, the U.S. Attorney filed a
motion for summary judgment as to liability and as to damages in this matter. On
March 31, 2008, the Court issued a Memorandum on Summary Judgment Motion
granting summary judgment in favor of the Government on the breach of contract,
False Claims Act and Anti-Kickback Act claims but, due to substantial disputed
facts, denied summary judgment on damages. The Court has scheduled a
status conference on June 10, 2008. Upon completion of the proceedings in
District Court to determine the amount of damages, if any, for which the Company
is liable, the Company would consider appealing the District Court’s decision
granting summary judgment to the Government depending on the outcome.
Nevertheless, the Company believes the Court Memorandum of March 31, 2008
substantially narrows the range of likely outcomes.
Accordingly,
at March 31, 2008, the Company has recognized an estimated liability for all
claims related to this matter in the amount of $9 million, reduced by $2.2
million for estimated tax benefits, for an aftertax effect of $6.8
million. Of this amount, $181 was provided for in previous
periods. This amount represents the Company’s best estimate of
liability. However, as the matter is on-going, the ultimate outcome
remains uncertain. Due to these uncertainties, actual results may eventually
differ materially from the $9 million the Company has provided, and the range of
reasonably possible loss
cannot be
estimated. As a result, there can be no assurance that that there will be
additional provisions required, which could have a material adverse effect on
the Company’s business, financial position, results of operations and cash
flows.
3. The
Company has provided documents in response to a previously disclosed grand jury
subpoena issued on October 15, 2002 by the United States District Court for the
District of Massachusetts, directing the Company to produce specified documents
dating back to 1996. The subpoena relates to an investigation, currently focused
on the period from 1996 to 1999, by the Antitrust Division of the Department of
Justice into the bidding and procurement activities involving the Company and
several other defense contractors who have received similar subpoenas and may
also be subjects of the investigation. On February 7, 2007, the Company was
informed that the Antitrust Division has communicated to the Department of
Justice in Washington, D.C. the results of its investigation which have not been
made available to the Company. The Company has cooperated in the investigation,
however, it does not have a sufficient basis to predict the outcome of the
investigation. Should the Company be found to have violated the antitrust laws,
the matter could have a material adverse effect on the Company’s business,
financial position, results of operations and cash flows.
4. On
June 28, 2005, a suit, characterized as a class action employee suit, was filed
in the U.S. Federal Court for the District of Massachusetts alleging violations
of the Fair Labor Standards Act and certain provisions of Massachusetts General
Laws. The Company believes that its practices comply with the Fair Labor
Standards Act and Massachusetts General Laws. The Company intends to vigorously
defend itself and has sought to have the complaint dismissed from Federal Court
and addressed in accordance with the Company’s mandatory Dispute Resolution
Program for the arbitration of workplace complaints. On April 10, 2006, the U.S.
Federal Court for the District of Massachusetts entered an order granting in
part the Company’s motion to dismiss the civil action filed in that court
against the Company, and to compel compliance with its mandatory Dispute
Resolution Program, directing that the parties arbitrate the aforementioned
claims, and striking the class action waiver which was part of the Dispute
Resolution Program. Following the District Court’s decision, the plaintiffs
commenced arbitration before the American Arbitration Association, asserting the
same claims as they asserted in the District Court. On January 26, 2007 the
Company filed an appeal with the United States Court of Appeals for the Second
Circuit appealing the portion of the District Court’s decision that the class
action waiver is not enforceable. The U.S. Court of Appeals on November 19, 2007
concurred with the District Court’s opinion that the matter should proceed in
arbitration and remanded the matter to the District Court. The parties have
informed the District Court that they will proceed in arbitration as a class
action. In the arbitration, the Company has filed a Motion to Dismiss and/or for
Summary Disposition, asserting that the Company is entitled to use the “window
of correction” provided by the Fair Labor Standards Act’s regulations and that
the arbitration should be dismissed without further action in the arbitration.
The motion is pending before the arbitrator. The outcome of this litigation, if
unfavorable, could have a material adverse effect on the Company’s business,
financial position, results of operations and cash flows.
